VF Corp seen as most suitable buyer for Puma
Shares in Puma jumped 11.8% on reports of a potential sale
Shares in Puma jumped 11.8% yesterday (3 November), after Reuters reported that three Paris traders were talking of a bid for French group Kering's 86% stake in Puma.
Kering declined to comment on the reports and Puma did not return a request for comment, but UBS analyst Michael Binetti believes there are few brands both big enough and close enough to VF's core capabilities that could add significant long-term shareholder value to Puma.
"We think Puma makes sense for VF - and we believe VF could simply pay more than many potential bidders in a competitive bidding process and still generate EPS accretion in year one."
In its second-quarter, Puma recorded a 76.2% drop in net earnings, but the performance was in line with both analyst and company expectations.
Earlier in the year, the sportswear brand laid down foundations to return the company to its sportswear focus, with a new brand campaign dubbed 'Forever Faster' that launched in August.
Binetti believes that regardless of whether Puma is truly up for sale, there are a number of reasons why VF Corp would be a strong suitor.
"Puma is ~600bp below peak gross margins - with an unclear brand message with distribution throughout undesirable/off-price channels that we think VF could clean up quickly. Our model assumes accretion year-one at Puma's current ~30% tax rate. But like Timberland, VF could move parts of the business to its Switzerland HQ to lower Puma's tax rate/boost earnings power early on while it focuses on fixing lackluster operations. VFC [also] has a history of quickly eliminating
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